A combination of inflation and stock market saggage means that Americans aren’t as rich as we thought we were. When we thought that we were crazy rich (2020-2021) and it was illegal to buy a variety of services, such as international travel to most destinations, we loaded up on real estate. Now the collapse is forecast, partly due to sky-high interest rates that the Fed hopes will tame inflation despite the government continuing to borrow and spend $trillions more than is raised via taxation.
On the theory that “people need to live somewhere” and the U.S. population is being dramatically expanded via low-skill immigration (see “Modern Immigration Wave Brings 59 Million to U.S., Driving Population Growth and Change Through 2065” (Pew 2015), I don’t think prices for primary houses will go down in nominal dollars. Perhaps the values will be eroded by inflation, but I will guess that that real (inflation-adjusted) price of a house in 2027 is no more than 10 percent lower than today’s price. Americans are not competent at planning and building infrastructure and therefore new construction to accommodate the migrant-fueled population boom is going to be super expensive (see City rebuilding costs from the Halifax explosion).
On the other hand, an individual person or family does not need two houses. So if there needs to be a real estate collapse, I am thinking that it will happen in the vacation house market.
Arguments in favor of continued high demand for houses in vacation destinations:
- the laptop class can pretend to work from anywhere
- demand for ski resort lift tickets has never been higher (Smithsonian)
- those who support lockdowns, school closures, masks, and vaccine papers checks are voluntarily traveling like crazy now, packing themselves into 100% full airliners, going to theme parks, etc.
Arguments against continued high demand for recently purchased vacation houses:
- a second property tax bill every year
- a second set of contractors to beg
- rising maintenance and utilities prices
We rented a cozy cabin in the Great Smoky Mountains (report). Zillow says that the pre-Biden value of the 1,344 square-foot mansion was $350,000 and that it is currently worth about 725,000 Bidies, down from a peak of 763,000. It actually was sold by the builder, brand new, in August 2019 for $305,000.
We enjoyed being there for a few nights, but is it worth more than a townhouse within commuting distance of a highly paid job in a dynamic city? I don’t see how that is possible in the long run.
Related:
- “Demand For Vacation Homes Is Now Below Pre-Pandemic Levels” (Redfin, June 24, 2022) says that demand is already gone while super high prices (in nominal dollars) persist
For the people that locked in below 3% interest rates, why would they ever sell in an inflationary environment?
Most of the houses in Calif* are rental properties. The worst that could happen is the owners trading their houses for bonds at once. Powell’s irrational exuberance speech felt like Greenspun’s premature loosening speech in 1994 & we know what happened in the next 6 years.
@lion, it was Greenspun who gave irrational exuberance speech in 1996, not Powell. What happened next is web coming to age and some ipo fraud, both things not directly connected to macroeconomics Greenspun was highly skilled financial managers and success of his type of policies depended on him or skilled folks like him running financial policy. At that time it was a consensus that his “irrational exuberance” comment was part of it how he managed overheating without hiking interest rates too much.
What I learned from past monetary devaluations and systemic bankruptcy, the worst form of investing is cash including bank deposits an government bonds. Real estate matters. The most risk to it is from possibility of local governments hiking property taxes beyond rate of money expansion, which is not likely
The madness has spread globally. In 2012 I was looking at a 2400ft condo in Whistler for $1,000,000 CDN. Between renting it out and using it as a vacation home, I almost bought it. Should have. Today that same condo is listed for $5,195,000.
https://www.realtor.ca/real-estate/24122342/25-7124-nancy-greene-drive-whistler
Global Warming, liberal immigration policies (for high-skilled or wealthy immigrants) and wealthy Chinese desperate to shelter their wealth and offspring from the Chinese Communist Party means Canadian real estate is a good place to invest in.
@Fazal Majid, it is funny that you are explaining US real estate prices rise that include record home prices in places like Florida, the southern-most and the hottest part of the United States, real estate price jump by global warming. Florida and southern states Texas and Arizona see large migration waves from norther US states and immigration from Canada by the way. You come across as quite smart person. Are you sure that global warming is the culprit here?
Real estate price jump in Florida and Texas is much greater then in northern United States.
Makes sense that Republicans are moving to Arizona, Texas, and Florida since they are generally climate change deniers. Who cares about 100 degrees today when you can have 105 degrees next year? Chinese and US liberals are flocking to Canada.
A sitting Lt Gov recently said he doesn’t think kids should be taught science before the 5th grade. Got to keep ’em dumb to keep them moving to Florida.
@Mike, absolutely science the way it is taught now should not be taught to 10-year olds. Results in people without basic reading and quantitative skill full of stereotypes that they take for knowledge and which the can not apply and without basics. Maybe some lab-type botanical/biological and constructor projects. Abstract elementary education should focus on reading, writing and real quantitative skills that include advanced arithmetic/geometry how it was originally invented in antiquity and maybe beginning of algebra to develop communication skills and intellect and on crafts and sports to develop motor skills, spatial skills and ability to do things. After that science comes naturally. I ave seen people with PhD who would not understand how practically find circle diameter if circumference but not diameter can be easily measured with a string. And they celebrated Pi day!
Glad that Republicans are global-warming – proofed. I guess they are selected by natural selection as next evolutionary winners.
Mike’s confusion about the Florida climate is common. Miami is, of course, often cooler than Boston and Chicago during the summer. It is rare for temps to be above 90 in southeast FL and also, unfortunately, rare for the daily high temp to be below 90 between May 1 and October 1.
Mike-
The average temp in the 2010’s here in Birmingham, Alabama was 74.9. That’s up from 74.3 in the 1930’s, but also more interestingly it dropped 2 degrees lower in the 1970’s (Jimmie Carter effect?).
By all means, run away to Canada, and leave the Amercican coastal homes to the climate-change grifters.
@Mike, I find it interesting that liberals are so worried about climate change, COVID, guns, genders and the likes to save our *kids* and give them a better future — but yet they have absolutely nothing to say about the quality of education they are receiving in K-12.
When was the last time you read on the front page, on the news, or heard from leaders that our kids failing at school? When was the last time you saw leaders marching and demanding better out of our public schools? When was the last time our public schools were called to a hearing to be questioned about the poor teaching quality they offer?